Government regulations, including sequestration and President Obama’s health care policies, will have a big impact on which industries distressed debt investors decide to get involved in, said dealmakers at iGlobal Forum’s 4th Global Distressed Debt Investing Summit in New York on Feb 20.
Distressed debt investors buy the debt of companies at risk of going into bankruptcy, or in need of out-of-court restructuring. With bankruptcy filings on the decline, these investors are looking for places to put their money.
The sequester, a government policy that would result in spending cuts starting March 1 if congressional action isn't taken, including cuts to the U.S. military budget, means investors will likely gravitate towards investing in defense companies. If the budget cuts go into effect, defense companies will be split into two groups – the winners and the losers – giving distressed investors an opportunity to buy debt at a discount.
Distressed debt investors are also likely to head for the health care industry, as it’s also been affected by government policies.
“Anywhere the government plays a heavy hand,” that’s where investors can find above-average levels of distressed debt opportunities, says Andrew Milgram, managing partner and chief information officer at Marblegate Asset Management, a hedge fund manager based in Greenwich, Conn. Milgram was part of a panel at the iGlobal summit.
There are also distressed-debt opportunities in the tech, media and telecom industry, says Munir Alam, a co-portfolio manager at Watershed Asset Management, a San Francisco-based alternative investment firm that invests in debt and equity securities. Those opportunities come from a continued lack of wireless spectrum, which is a problem that affects many telecom providers, and the movement of textbooks from print to other media, such as tablets and smartphones.
The energy and shipping industries, as well as some companies converting into real estate investment trusts could also create distressed opportunities.
The distressed debt market has experienced changes, particularly because of low interest rates and an unbalanced supply-demand scale.
Once an investment is identified, the investor needs to get involved as early as possible. Investors need to have ideas in place before the restructuring period happens. Otherwise, it’s too late, says Jason Friedman, a managing director at Marathon Asset Management, a New York-based credit manager.
Pictured: Panelists at the iGlobal Forum's 4th Annual Global Distressed Debt Investing Summit: Andrew Milgram, Marblegate Asset Management; Robert Koltai, Hain Capital Group; Todd Solomon, Halcyon Asset Management.